Oil prices rally as worsening Israel-Gaza war stokes supply concerns

Oil pump jacks in Eddy County, New Mexico. War in Gaza has overshadowed other developments, including a potential return of Venezuelan oil to the market. AFP

Oil prices rose on Wednesday on growing concerns that the Israel-Gaza war could escalate and potentially affect crude supplies from the region.

Brent, the benchmark for two thirds of the world’s oil, was trading 1.37 per cent higher at $91.21 a barrel at 8.37pm UAE time while West Texas Intermediate, the gauge that tracks US crude, was up 1.50 per cent at $87.96 a barrel.

“The fresh spike in oil was after the hospital bombing in Gaza, and as focus turns to China’s gross domestic product and activity data today,” said Charu Chanana, market strategist at Saxo Bank.

The Middle East is facing a new bout of geopolitical uncertainty as the war between Israel and Hamas, which governs the Gaza Strip, continues to rage. More than 4,000 people have been killed in the conflict, which has entered its 12th day.

More than 3,000 have been killed in Gaza alone as the siege of the blockaded enclave continues.

Israeli Prime Minister Benjamin Netanyahu has already spoken of a long war as his troops gather on the Gaza border for a full-fledged ground invasion.

There were protests in the occupied West Bank and around Middle East cities after more than 500 Palestinians were killed in an air strike on a Gaza city hospital on Tuesday.

While Palestinian health workers confirmed it was an Israeli strike, Prime Minister Benjamin Netanyahu's government has denied responsibility.

Meanwhile, US President Joe Biden’s Wednesday meeting in Amman with Arab leaders to discuss the escalating developments conflict has been cancelled, the White House has said.

The summit, which was due to take place in the Jordanian capital after his stop in Israel, was to include Jordan's King Abdullah II, Palestinian President Mahmoud Abbas and Egyptian President Abdel Fattah El Sisi.

Energy traders are unsure how far the conflict will drag on and the impact it could have on crude supplies from the region, home to some of the world’s top oil-exporting nations.

The prices are surging “as energy traders remain in wait-and-see mode to see if the US diplomatic efforts will be successful in preventing the Israel-Hamas conflict from turning into a wider regional war”, said Edward Moya, a senior market analyst at Oanda.

Tension in Gaza will remain a major factor influencing prices in the short term, overshadowing even the potential return of Venezuelan oil to the market, as the situation continues to deteriorate in the Middle East, Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said.

“I am afraid we will see tensions further escalate in Gaza, and that could send oil prices higher by a big chunk,” she said.

Meanwhile, China's economy, the world's second largest, grew faster-than-expected in the third quarter, official data on Wednesday showed.

The country's gross domestic product grew 4.9 per cent year on year in July-September, according to the National Bureau of Statistics.

Analysts polled by Reuters had been expecting an expansion of 4.4 per cent.

The Asian country's post-Covid economic recovery lost momentum in the second quarter mainly due to a deepening property slump and weak consumer spending.

China, the world’s largest crude importer, has announced a string of stimulus measures, including halving the stamp duty on stock transactions and easing mortgage rates.

“Chinese growth beat expectations as it came this close to the 5 per cent mark in the [third quarter], retail sales rose more than expected as unemployment fell,” Ms Ozkardeskaya said.